Communications - October 2010

tech industries offshored at rates higher than 40%, and IT work was the most commonly offshored type of work. IT workers in the U.S. have experienced offshoring-related displacement at a rate of 8%, more than double the percentage in other occupations. Firms offshore for a number of reasons, but IT workers appear to be offshored primarily for cost or access to skills. Therefore, compared to sales workers offshored to provide customer contact to overseas markets, the offshoring of IT workers should lead to greater displacement of U.S.-based IT workers. Our results also provide empirical support for the hypothesis proposed in earlier work4 that employees in jobs requiring face-to-face contact or physical presence in a fixed location are less likely to be offshored. This suggests that IT workers are especially vulnerable to offshoring because IT jobs generally require less customer contact or interaction with fixed physical assets.

Our estimates imply an average dis-
placement rate of about 1% per year
for U.S.-based IT workers. However, as
offshoring grows more popular, our
findings, which suggest that workers
who do not provide personal services
are being displaced at a higher rate,
are consistent with emerging work
providing evidence for a potentially
significant long-term shift in the rela-
tive demand for skills within the IT
labor market. 23 These results suggest
that technical occupations reliant on
skills that can be delivered with rela-
tively little face-to-face contact are
more easily offshored. Other schol-
ars have noted that interpersonal or
managerial skills are increasingly
valuable for IT workers, 13, 17 so our
findings suggest that offshoring will
continue to drive a secular increase in
the direction of this trend. IT workers
concerned about offshoring-related
displacement may find more robust
career paths in IT professions that re-
quire personal delivery.

table 7. Probit analysis, worker displacement.

all
Workers
Probit
estimates
all
Workers
Probit
estimates
all
Workers
Probit
estimates
all
Workers
marginal
effects
it Workers
only
Probit
estimates
Probit Displacement
from offshoring
Impersonala
Job Level
Salary
Male?

Age number of employees

( 1)

.007

(.002)**

–. 103

(.048)*

–.048

(.023)*

.137

(.062)*

.197

(.040)** –.001

(.001)

controls

( 2) ( 3)

.004 .004 (.002)* (.002)** –.095 –.092 (.049)* (.050)*

–.059 –.056

(.024)** (.025)*

.066 .070

(.065) (.067) .194 .195 (.041)** (.043)**

–.001 –.000

(.001) (.001)

Industry Industry State race

.06

5,790

( 4) .011

(.002)**

–.006

(.003)**

–.130

(.059)** .006

(.003)** .014

(.003)** –.002

(.003)

( 5)

.000

(.004)

–.231

(.172)

–.021

(.058)

–.138

(.183)

.319

(. 103)**

.003

(.003)

Pseudo-r2 .03 .05 n 5,790 5,790 Standard errors are in parentheses, **p<.01 *p<.05

.06

5,471

.04

672

a composite skill index from blinder. 4 Higher values indicate less face-to-face contact or physical presence needed for job.

adverse consequences of offshoring should be concerned with the potential growth of offshoring rather than the existing level of offshoring-related displacement. Annual rates of offshoring-related displacement in the survey were on the order of 10% of aggregate IT-worker turnover. While unclear at what level offshoring shifts from a trend affecting mostly individual workers to a concern for all workers in an occupation, the trends should be measured and monitored.

Proposed policy interventions attempting to reduce the adverse effects of worker displacement (such as worker retraining and government compensation to offset wage losses associated with moving to new industries) could focus on specific occupations. Furthermore, training programs could focus on the movement of displaced workers toward work that combines existing skills with those that involve elements of personal delivery. Private or public educational institutions can potentially adjust their curricula to address